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How to Screw Up Your Life

We may not mean to endanger our financial futures, but we do it anyway. Yikes!

Enter a bookstore or library, and you'll likely find lots of books with titles such as How to Lose Weight, How to Win Friends and Influence People, How to Read a Book, How to Improve Your Marriage, How to Make Money in Stocks, How to Raise a Puppy, and so on. There's lots of advice available on how to enrich your life. Thinking about this recently, I realized that there's a gaping hole in this area: a dearth of books on how to screw up your life.

OK, I imagine that you're now thinking to yourself, "Well, who would want to live a less comfortable life?" I've actually got an example for you, believe it or not. I hadn't heard of Simone Weil until my eighth-grade English teacher recently recommended her biography to me. (Don't worry -- I'm not still in eighth grade.) So I read it. She was an upper-class French intellectual and activist who, feeling too privileged, chose to work in factories, lived on a tiny income, gave much of her money away, ate much less than most people, and often slept on the floor, even when there was a bed available. She's actually rather inspiring, despite her peculiarities.

Ways to screw up your lifeStill, I'll concede that most of us don't want to make our lives any worse off. Despite that, though, we often do things that will indeed screw up our lives. Permit me to list some no-nos, so that you can stop committing them if they apply to you.

Racking up credit card debt. Credit card debt is reverse-investing. Whereas you might earn 10% or so on a stock or fund in a year, credit card issuers are perhaps earning 20% (or more!) on you in a year. Instead of a little money in, it's a lot of money -- out. Fortunately, you can dig yourself out.

Not investing. I can see how it happens. You figure that things will somehow work out well in the end. There's Social Security, after all. But will it be around when you need it? Even now, according to the Social Security Administration, I stand to collect $1,700 monthly if I retire at 67. Will that be enough to sustain me? I think not. Can I count on a pension to help out? Nope. That's why I'm saving and investing as much as I reasonably can.

Delaying your investing in earnest. Each year that goes by without your investing for the future can have a big effect on your nest egg. That's because your most powerful dollars are the ones you invest first, because they have the longest time to grow. My article on the importance of two years should drive this point home. Fortunately, it's rarely too late -- or too early -- to start.

Not taking advantage of retirement accounts. If your employer offers a 401(k) plan and makes matching contributions to it and you're not participating, you're leaving free money on the table!

Having unrealistic expectations. The S&P 500 advanced 24% in 2003, but if you think you'll see that kind of result every few years, think again. The market's long-term historical average is around 10%, and in many years, it will deliver low-single-digit returns or even occasional negative returns. Still, over the long haul, it should do well.

Not being patient. Real wealth for most of us grows over decades, not days or even single years. If a company is growing steadily, if it has competitive advantages, and if its financial statements are strong, then don't worry if its stock has stagnated. The stock will catch up to its true value, eventually.

How to enrich your lifeJust a little time spent reading and learning about financial matters can make your future years far, far more comfortable. Solutions might not even be as complicated as you fear. Consider, for example, target-date mutual funds, which are rising in popularity. Each is designed around a specific retirement date, and its investments are chosen with that date in mind. The Vanguard 2025 (VTTVX) fund is for those who plan to retire in 2025. It recently had 79% of its assets in stocks and 21% in bonds, whereas its Vanguard 2045 (VTIVX) counterpart had 90% in stocks and 10% in bonds. See what's going on? The fund takes care of shifting your assets as you get older -- it adds more bonds in later years.

Target-date funds tend to invest in a handful of other funds from the fund family's lineup. The Vanguard 2025 fund, for example, recently had 63% of its assets in the Vanguard Total Stock Market Index (VTSMX) and 3% in Vanguard Emerging Markets Stock Index (VEIEX) -- giving you both domestic and foreign equity exposure. While the former has shareholders invested in the likes of Alcoa(NYSE:AA), Coca-Cola(NYSE:KO), Oracle(NASDAQ:ORCL), and EMC(NYSE:EMC), the latter invests in firms such as Telefonosde Mexico(NYSE:TMX), Petrobras(NYSE:PBR), and Taiwan Semiconductor(NYSE:TSM).

If you'd like to learn more about how to set yourself up for as cushy a retirement, consider trying our Motley Fool Rule Your Retirement newsletter service. A free one-month trial to the newsletter will give you access to all past issues, including a host of "Success Stories" profiling people who retired early and are willing to share their strategies. Editor Robert Brokamp also regularly tackles critical topics such as asset allocation, tax strategies, and retirement accounts, while he offers recommendations of promising stocks and funds from various experts. Click here for more information.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian